2007 Annual Report - AIG.com

American International Group, Inc. and Subsidiaries
Computation of Ratios of Earnings to Fixed Charges Exhibit 12
Years Ended December 31,
(in millions, except ratios) 2007 2006 2005 2004 2003
Income before income taxes, minority interest and cumulative effect of
accounting changes $ 8,943 $21,687 $15,213 $14,845 $11,907
Less — Equity income of less than 50% owned companies 160 188 (129) 164 146
Add — Dividends from less than 50% owned companies 30 28 146 22 13
8,813 21,527 15,488 14,703 11,774
Add — Fixed charges 11,470 9,062 7,663 6,049 5,762
Less — Capitalized interest 37 59 64 59 52
Income before income taxes, minority interest, cumulative effect of
accounting changes and fixed charges $20,246 $30,530 $23,087 $20,693 $17,484
Fixed charges:
Interest costs $11,213 $ 8,843 $ 7,464 $ 5,860 $ 5,588
Rental expense* 257 219 199 189 174
Total fixed charges $11,470 $ 9,062 $ 7,663 $ 6,049 $ 5,762
Ratio of earnings to fixed charges 1.77 3.37 3.01 3.42 3.03
Secondary Ratio
Interest credited to GIC and GIA policy and contract holders $ (6,660) $ (5,128) $ (4,760) $ (3,674) $ (3,578)
Total fixed charges excluding interest credited to GIC and GIA policy and
contract holders $ 4,810 $ 3,934 $ 2,903 $ 2,375 $ 2,184
Secondary ratio of earnings to fixed charges 2.82 6.46 6.31 7.17 6.37
* The proportion deemed representative of the interest factor.
The secondary ratio is disclosed for the convenience of fixed
income investors and the rating agencies that serve them and is
more comparable to the ratios disclosed by all issuers of fixed
income securities. The secondary ratio removes interest credited
to guaranteed investment contract (GIC) policyholders and guaranteed
investment agreement (GIA) contractholders. Such interest
expenses are also removed from earnings used in this calculation.
GICs and GIAs are entered into by AIG’s insurance subsidiaries,
principally SunAmerica Life Insurance Company and AIG Financial
Products Corp. and its subsidiaries, respectively. The proceeds
from GICs and GIAs are invested in a diversified portfolio of
securities, primarily investment grade bonds. The assets acquired
yield rates greater than the rates on the related policyholders
obligation or contract, with the intent of earning a profit from the
spread.
208 AIG 2007 Form 10-K